Demand could be high at the introduction and growth stages, leading to high turnover rates. When we look at individual SKUs, inventory turns will change as an item moves through its product life cycle. Consequently, the stock will remain in the warehouse until the following year, negatively affecting inventory turnover ratios. If inventory planners over-forecast for such fluctuations, they could be faced with excess inventory when demand plummets. Traditional festivals such as Diwali, Christmas or Halloween will also impact the sales of certain items at their respective times. For instance, a boiler supplier will often see demand peak during the winter months due to the UK weather, whilst a distributor of fans will often see sales spike in the summer. Seasonalityĭemand for many goods is dictated by seasonal patterns, such as the weather, festivals and traditions. If you’re one of them and your stock turnover ratio has dropped, you’ll need to build a plan to use up the excess goods sitting in your warehouse. Consequently, many businesses have been stockpiling goods to reduce the risk of stockouts. So, let’s get the obvious reason out of the way! Since the coronavirus pandemic, businesses across the globe have faced significant supply chain disruption, from shipping delays to increased raw material prices to a shortage of HGV drivers. Here are six reasons why your business could be challenged with low inventory turnover: 1. In addition, a business with a high stock turnover is likely to react better to market demands and have lower carrying costs per item, making it more profitable than one with a low inventory turnover. Inventory turnover is important because it highlights how efficient a company is at converting inventory into final sales and, therefore, much-needed cash. So, if you’ve recently calculated your inventory turnover ratio and noticed it’s low compared to your competitors, or you’ve seen your figures begin to fall – read this blog to help identify the cause. Whilst inventory turnover will vary from industry to industry, many businesses will benchmark it against similar companies to ensure it remains comparatively high. Most businesses that carry stock want to maintain a high inventory (or stock) turnover rate because they want the money they have invested in stock to be turned into a profit as quickly as possible. stock items sit on your shelves for longer than they should, affecting cash flow and increasing carrying costs. Low inventory turnover is when stock items are slow at moving through the business, e.g.
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